Nepal's Electricity Sector: Institutions, Capacity and Market Structure

There is no new Electricity Act. A replacement bill has been introduced, redrafted and reintroduced across successive parliaments without ever completing passage. What decides whether a project may be surveyed, built, connected and sold from is still the Electricity Act 2049 (1992), with the Electricity Rules 2050 (1993) beneath it, and the Department of Electricity Development still publishes both as current law. Forty sections, drafted before federalism, before the regulator, and before the private generation industry they now govern.

Who runs the sector

The Ministry of Energy, Water Resources and Irrigation sets policy and carries the budget.

The Department of Electricity Development, an agency of that Ministry, is where a developer starts. It receives applications, issues survey and generation licences under sections 4 and 5 of the Act, keeps the licence registers and inspects projects. Its published registers are organised by fuel, by capacity band above and below 1 MW, and separately for projects routed through the Investment Board.

The Nepal Electricity Authority is the state utility. It owns and operates the transmission network, runs distribution, dispatches the system, generates in its own right, and buys almost all privately generated power. Four functions that in most restructured markets sit in at least three institutions sit here in one.

The Electricity Regulatory Commission was established in 2076 (2019) under the Electricity Regulatory Commission Act 2074 (2017). It regulates tariffs, approves purchase and sale arrangements, and has issued the grid code and, since 2026, the open access framework. Its annual report for FY 2081/82 records a chairperson and four members supported by twelve civil servants on secondment and eighteen contract staff. That is the whole regulatory capacity applied to a sector carrying more than a trillion rupees of committed investment.

The conflict is structural rather than personal. The system operator sits inside the monopoly buyer, which is also a competing generator and the owner of the network everyone else needs. Every access, dispatch and settlement question in the sector runs back to that arrangement.

Installed capacity

	Capacity	Share
Hydropower	3,774.5 MW	94.8%
Solar	149.3 MW	3.7%
Thermal	53.4 MW	1.3%
Total installed (Poush 2082)	3,983 MW
Built by independent producers	3,335 MW	84%
Built by NEA and government	648 MW	16%

By Baisakh 2083 (April–May 2026) the producers’ association put the total at 4,161.8 MW, of which NEA held 661.1 MW and independent producers 3,500.7 MW. Under construction at the earlier date: 191 projects totalling 5,756 MW, larger than everything built since 1911.

Two features of that table matter. Nepal’s generation industry is overwhelmingly private, which is unusual for a system of this size and is the clearest success of the 1992 Act. And that private industry sells into a single buyer which has not been buying.

The transmission network

The Nepal Electricity Authority’s Transmission Directorate reported 7,110 circuit-kilometres of transmission line for FY 2082/83: 4,464 circuit-km at 132 kV, 1,324 at 220 kV, 807 at 400 kV and 514 at 66 kV, with 349 circuit-km added during the year. Substation capacity reached 15,541 MVA after an increase of 1,418 MVA.

The 400 kV Dhalkebar–Muzaffarpur line to India is the only high-capacity cross-border link in operation. The Butwal–Gorakhpur 400 kV line, a joint venture between NEA and Power Grid Corporation of India, was under construction at the time of the same report, with Nepal’s 18-kilometre section prioritised.

Network reach is the second constraint after offtake, and increasingly the first. The Kathmandu Post reported in August 2026 that roughly 1,000 MW is spilled in the wet season for want of evacuation capacity, and that export is capped at about 1,000 MW through Dhalkebar–Muzaffarpur plus smaller 132 kV flows.

The offtake problem

A generation licence confers a right to build and generate. It obliges nobody to buy. In Nepal the buyer is the Nepal Electricity Authority, and a de facto moratorium on new power purchase agreements has run since 2022.

As at July 2026, 281 projects totalling 16,425.77 MW held licences with no offtake agreement — over four times the installed base. The existing agreement stock, for comparison: 404 run-of-river agreements at 6,713 MW, 51 peaking run-of-river at 4,187 MW, one storage project at 140 MW, and 88 solar agreements at 1,055 MW.

The published purchase rates have not moved since 2074/01/14 (27 April 2017): NPR 8.40 per kWh in the dry season and NPR 4.80 in the wet season for run-of-river up to 100 MW, with 3% simple escalation for eight years. Nine years of Nepali inflation have run against a fixed nominal tariff, and the queue for that tariff has lengthened throughout. The commercial consequences are set out in power purchase agreements and the offtake constraint.

Money already committed

Sector figures reported in August 2026 put NPR 1.31 trillion of investment across 923 hydropower projects at all stages. Of that, NPR 1.24 trillion sits in 347 projects totalling 7,251 MW that are operating or under construction, and NPR 66.62 billion in 576 early-stage projects representing 27,535 MW. Electricity sales to India and Bangladesh earned NPR 29.32 billion in the fiscal year ended mid-July 2026.

Much of the equity behind those numbers is retail. Hydropower companies are among the most heavily traded groups on the Nepal Stock Exchange, and the Electricity Regulatory Commission requires its own prior approval before an electricity company issues shares to the public. When a flood took 405 MW of hydropower and 25 MW of solar offline across eleven projects in the Bhotekoshi basin on 26 August 2026, hydropower share prices fell the same day. Sector risk in Nepal is household risk.

Announced but not enacted

The FY 2026/27 budget carried two structural commitments. The Nepal Electricity Authority is to be split into separate generation, transmission and distribution companies, and private companies are to be allowed to trade electricity internationally. The budget also said new power purchase agreements will be signed on a take-or-pay basis, reversing the previous year’s move to take-and-pay, which had shifted hydrological risk onto developers. NPR 70 billion was allocated to transmission construction, and 1,040 MW of additions were targeted for the year.

None of the three has implementing legislation behind it. Unbundling a vertically integrated utility and admitting private traders to cross-border sales both need amendments the Electricity Act 2049 does not contain. Treat them as intentions with a budget line attached.

What is not confirmed

Three things a reader might expect are missing because they could not be confirmed at primary level, and each is recorded in the verification footer. The first is the megawatt threshold that sends a project to the Investment Board rather than the Department of Industry; the NPR 6 billion monetary threshold under FITTA 2075 is confirmed, a parallel capacity threshold is not. The second is commissioning status and dates for the major named storage and export projects. The third is any Departmental notice confirming the April 2026 pause on new survey licences, which is widely reported but does not appear on the Department’s own notice list.

Sources

1. Electricity Act, 2049 (1992) — English text

   Government of Nepal, published by the Department of Electricity Development · 1992 — in force as at August 2026 · Tier 1 — Primary legal instrument

   Supports: Sections 3, 4, 5, 6, 10, 11, 12, 21, 22 and 33 — the licence structure, licence terms, royalty, customs concession, bulk sale and export approval.

   Accessed 26 August 2026

2. Policies, Acts and Rules

   Department of Electricity Development, Ministry of Energy, Water Resources and Irrigation · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: That the Electricity Act 2049 and Electricity Rules 2050 are the instruments the Department itself publishes as current, alongside the Hydropower Development Policy 2058 and the Environment Protection Act 2076 and Rules 2077.

   Accessed 26 August 2026

3. Energy Statistics of Nepal 2026 and the IPPAN capacity counter

   Independent Power Producers' Association, Nepal, compiled from Nepal Electricity Authority data · Publication dated March 2026; site figures as at Baisakh 2083 · Tier 2 — Official publication

   Supports: Installed capacity of 3,983 MW at Poush 2082, the hydro/solar/thermal split, the 84% independent-producer share, and the 4,161.827 MW total reported at Baisakh 2083.

   Accessed 26 August 2026

4. Transmission Directorate — A Year in Review 2082/83

   Nepal Electricity Authority · Published 19 August 2026 · Tier 2 — Official publication

   Supports: Transmission circuit-kilometres by voltage, substation capacity of 15,541 MVA, the operational Dhalkebar–Muzaffarpur 400 kV interconnection and the Butwal–Gorakhpur line being under construction.

   Accessed 26 August 2026

5. Annual Report FY 2081/82

   Electricity Regulatory Commission · Posted to the Commission's website February 2026 · Tier 2 — Official publication

   Supports: The Commission's composition, its staffing of 12 seconded civil servants and 18 contract staff, and the directives it had drafted but not finalised in that year.

   Accessed 26 August 2026

6. Budget for FY 2026/27 — energy provisions

   Nepalnews (reporting the Government of Nepal budget statement) · 2026 · Tier 6 — Professional or news source

   Supports: The announced restructuring of the Nepal Electricity Authority into three companies, permission for private international electricity trading, the return to take-or-pay, the NPR 70 billion transmission allocation and the 1,040 MW addition target.

   Accessed 26 August 2026

7. India's rising power demand offers Nepal a market — but not forever

   The Kathmandu Post · 23 August 2026 · Tier 6 — Professional or news source

   Supports: NPR 29.32 billion of export earnings in the fiscal year ended mid-July 2026, NPR 1.31 trillion invested across 923 projects, and the 281 projects awaiting power purchase agreements.

   Accessed 26 August 2026